In this article it is argued that the formal/informal dichotomy is not based on a classification of economic activities. It is rather a division between workers according to the nature of the labour contracts under which they work. In a labour‐surplus economy, the logic of the market place can be kept at bay for some groups who have ‘political visibility’ and therefore political support, and these groups constitute the formal sector. However, modern technology permits transfers of economic activities from one of these sectors to another. At the same time, some specially vulnerable groups like the women workers of India, constrained to stagnate in the informal sector, form a pool of cheap labour. This undermines the strength of the working class movement as a whole, including those currently in the formal sector.